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DGZ a leveraged ETF?

Today I was experimenting with a new idea I had for an algorithm, based heavily on commodity ETFs, and when it got time to trade DGZ (short gold), I got an error because I had set the do not order list to stop me from trading leveraged ETFs. However, as I understand it, inverse ETFs are allowed (if not encouraged) by the contest rules, and this page indicates DGZ is only a -1x inverse. Is this a mistake, or is DGZ being counted as an inverse ETF because it rebalances monthly?

7 responses

Seems like a mistake in their leveraged ETF list.

Hi Christopher, can you copy the error message you are getting here? I took a look at the leveraged_etf_list by using the following code:

for etf in security_lists.leveraged_etf_list:  
    print '{s} is a leveraged etf'.format(s=etf)  

and DGZ (sid=35829) does not appear to be on the list!

Disclaimer

The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by Quantopian. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. No information contained herein should be regarded as a suggestion to engage in or refrain from any investment-related course of action as none of Quantopian nor any of its affiliates is undertaking to provide investment advice, act as an adviser to any plan or entity subject to the Employee Retirement Income Security Act of 1974, as amended, individual retirement account or individual retirement annuity, or give advice in a fiduciary capacity with respect to the materials presented herein. If you are an individual retirement or other investor, contact your financial advisor or other fiduciary unrelated to Quantopian about whether any given investment idea, strategy, product or service described herein may be appropriate for your circumstances. All investments involve risk, including loss of principal. Quantopian makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances.

Here's some simple code that attempts to compare the performance of DGZ against SPY. When I try to run it, it tells me:

There was a runtime error.
TradingControlViolation
There was a runtime error on line 25.
Order for 40322 shares of Equity(35829 [DGZ]) at 2008-02-29 00:00:00+00:00 violates trading constraint set_do_not_order_list.Learn More

Clone Algorithm
2
Loading...
Backtest from to with initial capital
Total Returns
--
Alpha
--
Beta
--
Sharpe
--
Sortino
--
Max Drawdown
--
Benchmark Returns
--
Volatility
--
Returns 1 Month 3 Month 6 Month 12 Month
Alpha 1 Month 3 Month 6 Month 12 Month
Beta 1 Month 3 Month 6 Month 12 Month
Sharpe 1 Month 3 Month 6 Month 12 Month
Sortino 1 Month 3 Month 6 Month 12 Month
Volatility 1 Month 3 Month 6 Month 12 Month
Max Drawdown 1 Month 3 Month 6 Month 12 Month
# Backtest ID: 561335dd1ea41d10b413bec9
There was a runtime error.

I'm sorry Christopher, you are right, I was mistaken. DGZ is, in fact, in the leveraged_etf_list. After looking into it, we have decided that it does not belong on the list and we will remove it.

Christopher,

While it does look like this instrument is not levered (and therefore was incorrectly included on the do not trade list currently) I would point out that it looks to be pretty thinly traded and only looks to have about $50M in net assets. I'm not sure how your intend to use this instrument, but I'd definitely be concerned that you might hit some very wide bid-ask spreads depending on when your algo goes to trade during the day.

Yahoo finance shows some order book data here: http://finance.yahoo.com/q/ecn?s=DGZ+Order+Book

Best, Jess

Disclaimer

The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by Quantopian. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. No information contained herein should be regarded as a suggestion to engage in or refrain from any investment-related course of action as none of Quantopian nor any of its affiliates is undertaking to provide investment advice, act as an adviser to any plan or entity subject to the Employee Retirement Income Security Act of 1974, as amended, individual retirement account or individual retirement annuity, or give advice in a fiduciary capacity with respect to the materials presented herein. If you are an individual retirement or other investor, contact your financial advisor or other fiduciary unrelated to Quantopian about whether any given investment idea, strategy, product or service described herein may be appropriate for your circumstances. All investments involve risk, including loss of principal. Quantopian makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances.

Jessica: there are often opportunities in thinly-traded instruments, because not many people are putting effort into analyzing them and obviously, if you're a market maker, wide bid-ask spreads work in your favor. It's certainly possible that under the parameters of Quantopian's contest, no such opportunities exist for DGZ, but I thought it was worth thinking about.

Christopher, Yes - totally agree.

I'm in the mode of thinking practically about what's achievable with our current IB implementation and a $100k contest account. From what we've seen so far (most of the strategies we have data for use market orders) that doesn't include intraday market making strategies. To get a more conservative simulation I'd suggest also testing your algo at a fixed slippage of 20 bps in addition to our current volume model default. If you get markedly different results it's probably a red flag and worth further digging.

best, Jess